AAPL – Icahn Says Apple Buyback Is a ‘No-Brainer’

by Robert Martin | October 24, 2013 12:23 pm

In an interview with Bloomberg TV, Apple (AAPL[1]) activist investor Carl Icahn reiterated his recommendation[2] for an Apple buyback. Though he stated that he believes in Apple’s CEO Tim Cook, he believes that an Apple buyback is the best way for the board to return value to shareholders, and that criticism of an Apple buyback “borders on idiotic” because the company has so much cash on their balance sheet.

More from the Bloomberg interview:

“I think a company and its board should do everything they can to enhance value. This is what you call a no-brainer. At the risk of being immodest, we have the best record by far over the past 12 to 13 years at Icahn Enterprises L.P. (IEP[3]), and it is done because of activism and because we proved over and over that you can go into companies and make managements accountable or change them, which the boards are lax in doing. If that were done more and the law allowed for it more, we would not have our problems.

“Look, the market is up right now, but I believe the market is up not because our companies are doing that well, but because interest rates are ridiculously low and as a result these companies are making money, but making it the wrong way.

“Jobs? There are no jobs. The jobs are very scarce. Therefore what you need are companies that are better run. I will say that there are many well-run and great companies. Apple, I believe, is managed well, but the board is not doing the job they should be, which is to take this cash that is making them no money, or borrow, which is the same thing, if you get into financial engineering. If you borrow money at 3%, which they can do, they can buy stock that returns 16% or 17%. It is a no-brainer and ridiculous not to do it.

To have critics say that you should leave Apple alone because they’re an icon and because of this and that, they have no knowledge of how to read a balance sheet. They have plenty of money to do anything they want, even if they did the buyback. They’re bringing in $40-$50 billion a year. The interest alone would purchase $150 billion. It is absurd to make this kind of criticism. I will obviously not tell you what is in the letter, but you can judiciously guess that we are not leaving Apple, we are there to stay and our record shows that we have been very successful in the last 12, 13 years going in, and cleaning up companies that need to be cleaned up or or at least to change them. I think that Apple needs a board that goes in and does a huge buyback. We are saying that. I respect Tim Cook and I expect to talk to him again very shortly and I think he is doing a very fine job.”

This is just Icahn’s most recent move — he’s beating the drum on the Apple buyback theme for a while now.[4] The letter to Tim Cook that Icahn alluded to was just released on his new website, The Shareholders’ Square Table[5], which Icahn created as a platform to fight for shareholder rights.

From the letter:

“Our criticism relates to one thing only: the size and timeframe of Apple’s buyback program. It is obvious to us that it should be much bigger and immediate.”

Currently, the Apple buyback plan[6] is to purchase $60 billion in shares over the next two years. The $150 billion Apple buyback move Icahn recommends would amount to about a third of Apple’s current market cap of $479 billion.

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.